FOREX-Yen firm as BOJ disappoints some, ZEW helps euro

Reuters Staff

5 Min Read

* Yen rebounds as BOJ decision disappoints
* BOJ open-ended asset purchases to come into effect in 2014
* BOJ doubles inflation target to 2 pct
* Euro up vs dollar after surprise German ZEW jump
By Anooja Debnath
LONDON, Jan 22 (Reuters) - The yen rose on Tuesday after the
Bank of Japan said its open-ended commitment to buy assets would
kick in only next year, disappointing those who expected more
aggressive monetary easing.
The euro pared sharp losses against the yen and
turned higher against the dollar after a German ZEW
survey showed that economic sentiment was at its highest since
May 2012.
Earlier the single currency had fallen to a session low
against the dollar and yen on speculation that some large German
banks could be asked to split their investment banking
operations, driving European shares lower.
But the biggest mover was the yen, with the Bank of Japan
once again falling short of expectations. The yen rose in the
aftermath, but traders said those gains would soon run out of
steam.
"There was some disappointment in markets that the BOJ would
start their open-ended bond purchases only in January 2014, so
we see some profit taking in dollar/yen," said Bernd Berg,
global FX strategist at Credit Suisse.
Japan's central bank, which has been under intense political
pressure to overcome deflation, doubled its inflation target to
2 percent as had been widely expected.
It also said it had decided to switch to an open-ended
approach of buying a certain amount of assets each month next
year, without setting a deadline for completing the purchases.
The dollar was down 0.9 percent against the yen at 88.76
as investors rushed to lock in profits after the BOJ
decision. Earlier it had fallen past reported stops at 88.50 yen
to hit a session low of 88.365 yen.
Traders cited bids at 88.00-88.20 yen while chart support
was at 87.80 yen, its Jan. 16 low. The dollar had risen to 90.18
yen immediately after the BOJ decision, not far from its 2-1/2
year high of 90.25 yen, but later retreated.
The yen's recovery was likely to be short-lived, and the
dollar would rise against the yen in the coming months, analysts
said.
"The general upward move in dollar/yen will continue due to
expectations of more easing after a new BOJ governor is
appointed in April," Berg said, adding that the dollar could
rise to 92 yen in the next few months.
Current BOJ Governor Masaaki Shirakawa's term ends in April
and markets are positioned for further yen weakness as most
expect him to be replaced by someone whose stance on aggressive
policy easing matches that of Prime Minister Shinzo Abe.
EURO RECOVERS
The euro was down 0.7 percent on the day at 118.47 yen, off
a session low of 117.32 yen after the single currency was
dragged down by a fall in European shares. They were hit by a
German newspaper report saying Germany's regulator had ordered
large banks to simulate a break-up.
Against the dollar, the euro was up 0.3 percent to $1.3350
, rising from $1.3307 before the German ZEW survey was
released.
While the euro has struggled to break above the $1.34 level
since it hit a 10-month high of $1.3404 a week ago, strategists
said it was likely to remain firm as concerns around the euro
zone crisis ease.
The German ZEW figures beat all expectations, a sign that
the euro zone crisis was no longer hitting Europe's largest
economy as hard as it was last year.
"The euro can cross the $1.34 mark to reach $1.35 as early
as the end of this week if data out of Germany continues to be
strong," said Joerg Angele, FX strategist at Raiffeisen Bank
International.
After European Central Bank President Mario Draghi's
surprisingly upbeat press conference this month helped buoy the
euro, the Bundesbank lent further support to the currency on
Monday, saying Germany's economic slump had probably already
bottomed out.
That is likely to see currency speculators and long-term
investors build bets in favour of the single currency in coming
week, traders said.